**Exhibit 10.1**
ANNUITY & LIFE RE (HOLDINGS), Ltd.
**EMPLOYMENT AGREEMENT**
     THIS AGREEMENT, dated as of February 18, 2004 by and between Annuity &Life Re Holdings LTD. (the “Parent Company”) and Annuity and Life ReassuranceLtd., both companies organized under the laws of Bermuda, (collectively andindividually, the Bermuda Companies”), Annuity & Life Re America, Inc., aCompany organized under the laws of Delaware and its subsidiary Annuity & LifeReassurance America, Inc. a Company organized under the laws of Connecticut(collectively and individually, the “US Companies”) (the Bermuda Companies andthe US Companies collectively, the “Group) and John W. Lockwood (hereinaftercalled the “Employee”).
WITNESSETH
     WHEREAS, the Group desires that the Employee serve as Director, Controllerand Treasurer of the US Companies and the Employee is willing to serve in suchcapacities; and
     WHEREAS, the Group desires that the Employee serve as Chief FinancialOfficer, Controller and Treasurer of the Bermuda Companies and the Employee iswilling to serve in such capacities; and
     NOW, THEREFORE, in consideration of the mutual covenants contained herein,and other good and valuable consideration, the parties hereto agree as follows:
**Section 1. Employment**
     Effective as of February 16, 2004, the Group will employ the Employee andthe Employee will perform services for the Group on the terms and conditionsset forth in this Agreement and for the period (“Term of Employment”) specifiedin Section 3. This agreement may be terminated at any time during its initialterm or during any renewal term solely in accordance with the terms andconditions of Section 10.
**Section 2. Duties**
     The Employee, during the Term of Employment, shall serve the Group in thecapacities defined below. The Employee shall split his time (approximately54/46) between the US Companies and the Bermuda Companies.
     With respect to the US Companies the Employee will, during the Term ofEmployment, serve as Director, Controller and Treasurer of the US Companies.The Employee shall spend approximately 54% of his time at the US Companies
 

 

headquartersin Hartford, CT. The Employee shall have the duties and responsibilitiesassigned to him by the Chief Executive Officer of the US Companies commensuratewith his position as Director, Controller and Treasurer of the US Companies.
     With respect to the Bermuda Companies the Employee will, during the Termof Employment, serve as a Senior Vice President. The Employee shall spendapproximately 46% of his time at the Bermuda Companies headquarters in Bermuda.The Employee shall have the duties and responsibilities assigned to him by theChief Executive Officer of the Bermuda Companies commensurate with his positionas Senior Vice President and Chief Financial Officer.
     The Employee shall perform the duties associated with his responsibilitiesin the US Companies and Bermuda faithfully and to the best of his abilities andin furtherance of the business of the Group, and shall devote his dull businesstime, energy, attention and skill to the business of the Group and to thepromotion of its interests except as otherwise agreed by the Group.
     The Employee warrants and represents that he is free to enter into thisAgreement and is not restricted by any prior or existing agreement and theGroup may rely on such representation in entering into this Agreement.
**Section 3. Term of Employment**
     The Term of Employment of this agreement shall commence on January 19,2004 and end December 31, 2004. At the end of the initial Term of Employment,and on each anniversary thereof, the Term of Employment shall automatically beextended for one additional year, unless the Group or the Employee shall havethe given written notice to the other that it does not wish to extend thisagreement at least three months in advance.
**Section 4. Salary**
     The Employee shall receive, as compensation for his duties and obligationsto the Group, a salary at the annual rate of $200,000, payable in substantiallyequal installments in accordance with the Group’s payroll practice. It isagreed between the parties that the Group shall review the base annual salaryannually and in light of such review may, in the discretion of the Board ofDirectors of the Parent Company (but shall not be obligated to), increase suchannual base salary taking into account any changes in the Employee’s thenresponsibilities, increases in the cost of living, performance by the Employee,and other pertinent factors.
**Section 5. Bonus**
     During the Term of Employment, the Employee shall participate in theGroup’s Incentive Compensation Plan, and will be eligible for an annual cashbonus
 

 

of up to one times his annual salary based on the performance targets asdetermined in accordance with the terms of the Plan.
**Section 6. Options**
     The Employee has previously been granted stock options under the ParentCompany’s Initial Stock Option Plan (the “Initial Options”). With respectthereto and other stock based compensation:
     (a) No Initial Option may be exercised after theearlier of (A) the date that is (i) ninety (90) days following the terminationof the Employee’s employment for any reason other than death, disability orSerious, Cause (as defined in Section 10), or (ii) six (6) months after thetermination of the Employee’s employment by reason of death or disability or(iii) the date upon which the Employee’s employment is terminated for SeriousCause; or (B) the tenth anniversary of the grant of such Option.
     The consideration of the Ordinary Shares purchased upon exercise of theInitial Options may be paid in cash or by any other method permitted by theterms of the Parent Company’s Initial Stock Option Plan (the “Plan”). Theissuance of any Ordinary Shares pursuant to the Initial Options shall in allevents be subject to all applicable securities laws and the Employee shallenter into any agreement reasonably requested by the Parent Company in order toensure that all such issuances are in full compliance therewith. The Employeeshall not have any of the rights and privileges of a shareholder of the Companywith respect to the Ordinary Shares issuable upon any exercise of Initialoptions unless and until his name is entered into the register of stockholdersof the Parent Company in respect of such Ordinary Shares. If there is anychange in the number or nature of outstanding shares of the Parent Company’scapital stock by reason of share dividend, recapitalization, merger,consolidation, scheme of arrangement, share split, combination or exchange,share repurchase or otherwise, which in any such case has a dilutive oranti-dilutive effect on the Ordinary Shares, the number of Ordinary Sharessubject to each outstanding Initial Option, the exercise price thereof and/orother terms thereof shall be appropriately adjusted by the Board of Directorsof the Parent Company (or any committee thereof), whose determination shall beconclusive, so as to restore the option holder to his rights thereunder.
     (b) During the Term of Employment, the Employeeshall be eligible to be granted options to purchase Ordinary Shares at suchprice and subject to such terms as provided by the Plan, in the sole discretionof the Board of Directors of the Parent Company.
     (c) During the Term of Employment, the Employeeshall be eligible to receive restricted stock subject to such terms as providedby the Parent Company’s Restricted Stock Plan, in the sole discretion of theBoard of Directors of the Parent Company.
**Section 7. Employee Benefits**
 

 

     During the Term of Employment the Employee shall be entitled toparticipate in all employee benefits programs of the Group, as such programsmay be in effect from time to time, including without limitation, pension andother retirement plans, profitsharing plans, group life insurance, accidental death and dismembermentinsurance, hospitalization, surgical and major medical coverage, sick leave(including salary continuation arrangements), long-term disability, holidaysand vacations. The US Companies shall contribute monthly ten percent of thebase monthly salary of the employee to a retirement plan for the benefit of theEmployee.
**Section 8. Business Expenses**
     All reasonable travel and other expenses incidental to the rendering ofservices by the Employee hereunder shall be paid by the Group; subject in eachcase to compliance with the Group’s reasonable reimbursement policies andprocedures.
**Section 9. Vacations**
     The Employee shall be entitled to reasonable vacation and reasonable sickleave each year, in accordance with policies of the Group, as determined by theBoard of Directors, provided, however, that the Employee shall be entitled to aminimum of four (4) weeks vacation per year. For the purposes of thisagreement “vacation pay” shall mean: accrued but unused vacation time paid atthe Employee’s current daily base salary rate.
**Section 10. Termination**
     (a) In the event of Serious Cause, as definedbelow, the Group may terminate the employee’s Employment and the Term ofEmployment upon written notice of such termination stating the Serious Causeupon which the Group relies for its termination. The Employee’s employmentshall be terminated effective as of the date specified in such notice whichshall in no event be earlier than the effective date of such notice as providedin Section 19.
     “Serious Cause” shall mean (i) the willful and continued failure by theEmployee to perform substantially his duties hereunder, other than by reasonsof health, after written demand for substantial performance is delivered by theGroup that identifies the manner in which the Group believes the Employee hasnot substantially performed his duties, (ii) the employee shall have beenindicted by any federal, state or local authority in any jurisdiction for, orshall have pleaded guilty or nolo contender to, an act constituting a felony,(ii) the Employee shall have habitually abused any substance (such as narcoticsor alcohol), or (iv) the Employee shall have (A) engaged in acts of fraud,material dishonesty or gross misconduct in connection with the business of theGroup or (B) committed a material breach of this agreement.
     (b) The Employee may terminate his employment andthe Term of his Employment in the event of Good Reason, as defined below, upon30 days’ prior written notice of such termination stating the Good Reason uponwhich the Employee relies for his termination. The Employee’s employment andthe Term of
 

 

Employment shall be terminated effective as of the date specifiedin such notice, which in no event shall be earlier than the effective date ofsuch notice as provided in Section 19.
     “Good Reason” shall mean (i) a substantial reduction on the Employee’ssalary or benefits, (ii) the demotion of the Employee, (ii) a materialreduction of the Employee’s duties or responsibilities hereunder, (iv) amaterial breach of this Agreement by the Company, or (v) the occurrence of anyaction taken by the Company that would constitute a constructive termination ofthe Employee’s employment.
     (c) In the event of termination of the Employee’semployment and the Term of Employment by the Company for Serious Cause or bythe employee without Good Reason, the Employee shall forfeit all bonus amountsfor the then fiscal year, and the Group shall be liable to the Employee onlyfor (i) any accrued but unpaid salary, (ii) any accrued but unpaid bonus from aprior fiscal year, (iii) any accrued but unpaid vacation pay and (iv)reimbursement of business expenses incurred prior to the date of termination.
     In the event of death, retirement or disability of the employee, theEmployee’s employment and Term of Employment shall be terminated as of the dateof death, retirement or disability and the Group shall pay the Employee, or theEmployee’s estate or legal representative, as appropriate, (i) any accrued butunpaid salary, (ii) any earned but unpaid bonus from a prior fiscal year, and(iii) reimbursement of business expenses incurred prior to the date oftermination. The date of the Employee’s disability shall be deemed to be thelast day of the sixth month during which the Employee has been unable to carryout his position as provided below.
     “Disability” shall mean the Employee’s inability, for reasons of health,to carry out the functions of his position for a total of six (6) months duringany 12-month period of the Agreement. “Retirement” shall mean retirement fromemployment upon attaining age 65 or such earlier age agreed to by the Group.
     In addition, in such event, if the Parent Company’s Ordinary Shares arenot then publicly traded, the Parent Company shall have the right to call anyor all of the Ordinary Shares of the Parent Company owned by the Employeewithin six (6) months after death, retirement or disability, and the Employee,the Employee’s estate or legal representative, whichever is appropriate, shallhave the right to put any or all of the Employee’s Ordinary shares to theParent Company within twelve (12) months after death or within six (6) monthsafter retirement or disability. The price at which such put or call isexercisable shall be equal to the appraised value as determined by anAccredited Senior Appraisor (ASA) as accredited by the American Society ofAppraisors or a Certified business Appraisor (CBA), in each case measured as ofthe date of termination, the date of Ordinary Shares are called by the ParentCompany, or the date the Employee, the Employee’s estate or legalrepresentative puts the Employee’s Ordinary Shares, whichever is greater.
     If the Group should (i) terminate the Term of Employment and theEmployee’s employment herein without Serious Cause, or (ii) the Employee shall
 

 

terminate the Term of Employment and his employment hereunder for Good Reason,the Group shall continue to pay the Employee his case salary for a period ofone year from such termination. In addition, the Employee shall be entitled to(a) any accrued but unpaid salary, (b) any earned but unpaid bonus from a priorfiscal year, (c) any accrued butunpaid vacation pay and (d) reimbursement of business expenses incurred priorto the date of termination.
     In the event of the liquidation of the Group or in the event that theBoard of Directors elects to discontinue permanently operating the Group, theTerm of Employment and the Employee’s employment herein shall be terminated asof the date of such liquidation or discontinuance and the Group shall pay theEmployee (i) any accrued but unpaid salary, (ii) any earned but unpaid bonusfrom a prior fiscal year, (iii) any accrued but unpaid vacation pay and (iv)unreimbursed business expenses incurred prior to the date of termination. Inaddition, the Employee shall be entitled to receive one year’s base salary fromthe date on which the Employee’s employment is terminated.
**Section 11. Change in Control**
     (a) Notwithstanding any other provision containedherein, the Employee’s Initial Options and other options issued under theParent Company’s share option plans that are not then exercisable shall becomeexercisable (and be deemed to be vested) on the date on which a Change inControl of the Parent Company occurs. In addition, restricted Ordinary Sharesgranted under any of the Parent Company’s share option plans or RestrictedStock plans shall immediately vest upon Change in Control of the ParentCompany.
     (b) If (i) the employment of the Employee isterminated by the Group (or successor thereto) without serious cause or (ii)Employee terminated employment with the Group (or successor thereto) for GoodReason or because the failure of a successor to the Parent Company to expresslyassume and agree to perform this agreement, within the period commencing on thedate that a Change in Control is formally proposed to the Parent Company’sBoard of Directors and the ending of the sixth month after he date on whichsuch Change in Control occurs, then the Employee shall be entitled to receive(in lieu of the benefits described in Section 10); (1) any accrued but unpaidsalary, (2) a lump sum payment equal to two times such Employee’s annual basesalary as of the date of termination, (3) any accrued but unpaid bonus from aprior fiscal year, (4) any accrued but unpaid vacation pay and (4)reimbursement of business expenses incurred prior to the date of termination.
     The employee shall not be entitled to any benefits or other entitlementsunder this section unless a Change of Control actually occurs.
     (c) A “Change of Control” of the Parent Companyshall be deemed to have occurred if (i) any “person” (as such term is definedin Section 3(a)(9) and as used in Sections 13(d) and 14(d) of the SecuritiesExchange Act of 1934 (the “Exchange Act”)), excluding the Parent Company, atrustee or any fiduciary holding securities under an employee benefit plan ofthe Parent Company, an underwriter temporarily holding securities pursuant toan offering of such securities
 

 

or a corporation owned, directly or indirectly,by shareholders of the Parent Company in substantially the same proportion astheir ownership of the Parent Company, is or becomes the “beneficial owner” (asdefined in rule 13d-3 under the Exchange Act), directly or indirectly, ofsecurities of the Parent Company representing 50% or more of the combinedvoting power of the ParentCompany’s then outstanding securities (“Voting Securities”); (ii) during anyperiod of not more than two years, individuals who constitute the Board ofDirectors of the Parent Company (the “Board”) as of the beginning of the periodand any new director (other than a director designated by a person who hasentered into an agreement with the Parent Company to effect a transactiondescribed in clause (i) or (iii) of this sentence) whose election by the Boardor nomination for election by the Parent Company’s shareholders was approved bya vote of at least two-thirds (2/3) of the directors then still in office whoeither were directors at such time or whose election or nomination for electionwas previously so approved, cease for any reason to constitute a majoritythereof; (iii) the shareholders of the Parent Company approve a merger,consolidation or reorganization or a court of competent jurisdiction approves ascheme of arrangement of the Group, other than a merger, consolidation,reorganization or scheme of arrangement which would result in the VotingSecurities of the Parent Company outstanding immediately prior theretocontinuing to represent (either by remaining outstanding or by being convertedinto Voting Securities of the surviving entity) at least 50% of the combinedvoting power of the Voting Securities of the Parent Company or such survivingentity outstanding immediately after such merger, consolidation, reorganizationor scheme of arrangement; or (iv) the shareholders of the Parent Companyapprove a plan of complete liquidation of the Parent Company or any agreementfor the sale of substantially all of the Parent Company’s assets.
**Section 12. Agreement Not To Compete**
     The Employee hereby covenants and agrees that at no time during the Termof Employment nor for a period of (i) one year immediately following thetermination of the Employee’s employment by the Group without Serious cause orby the Employee for Good Reason or in the event of the liquidation of the Groupor in the event the Board of Directors of the Parent Company elect todiscontinue permanently operating the Group or (ii) one year following thetermination of the Employee’s employment for any other reason, will he forhimself or on behalf of any other person, partnership, company or corporation,directly or indirectly, acquire financial or beneficial interest in (except asprovided in the next sentence) any entity engaged in any business directlycompetitive to the business engaged in by the Group at the time of suchtermination of employment. Notwithstanding the preceding sentence, theEmployee shall not be prohibited from owning less than one (1%) percent of anypublicly traded corporation, whether or not enter into competition with theGroup for a period of one year following termination. For the purposes of thisEmployment Agreement, “competition” will mean soliciting reinsurance businessfrom any clients of the Group. Clients of the Group are those companies forwhom the Group has reinsured business in force as of the date of thisagreement.
 

 

     The Employee hereby covenants and agrees that, at all times during theTerm of Employment and for a period of one year immediately following thetermination thereof, the Employee shall not directly or indirectly employ orseek to employ any person or entity employed at that time by the Group, orotherwise encourage or entice such person or entity to leave such employment.
**Section 13. Confidential Information**
     The Employee agrees to keep secret and retain in the strictest confidenceall confidential matters which relate to the Group, including, withoutlimitation, customer lists, client lists, trade secrets, pricing policies andother business affairs of the Group learned by him from the Group or otherwisebefore or after the date of this Agreement, and not to disclose any suchconfidential matter to anyone outside the Group, whether during or after hisperiod of service with the Group, except as may be required in the course of alegal or governmental proceeding. Upon request by the Group the Employeeagrees to deliver promptly to the Group upon termination of his services forthe Group, or at any time thereafter as the Group may request, all Groupmemoranda, notes, records, reports, manuals, drawings, designs, computer filesin any media and other documents (and copies thereof) relating to the Group’sbusiness and all property of the Group, which he may then possess or have underhis control.
**Section 14. Remedy**
     Should the Employee engage in or perform, either directly or indirectly,any of the acts prohibited by Sections 12 or 13 hereof, it is agreed that theGroup shall be entitled to full injunctive relief, to be issued by anycompetent court of equity, enjoining and restraining the Employee and each andevery other person, firm, organization, association, or corporation concernedtherein from continuance of such violative acts. The foregoing remedyavailable to the Group shall not be deemed to limit or prevent the exercise bythe Group of any or all further rights and remedies which may be available tothe Group hereunder or a law in equity.
     The Employee acknowledges and agrees that the covenants contained in thisagreement are fair and reasonable in light of the consideration paid hereunder,and the invalidity or unenforceability of any particular provision, or part ofany provision, of this agreement shall not affect the other provisions or partshereof. If any provision hereof is determined to be invalid or unenforceableand if any such provision shall be so determined to be invalid or unenforceableby reason of the duration or geographical scope of the covenants containedtherein, such duration or geographical scope, or both shall be consideredreduce to a duration or geographical scope to the extent necessary to cure suchinvalidity.
**Section 15. Successor and Assigns**
     This agreement shall be binding upon and inure to the benefits of theEmployee, his heirs, executors, administrators and beneficiaries, and theGroup, and their successors and assigns.
 

 

**Section 16. Governing Law**
     This Agreement shall be governed by and construed and enforced inaccordance with the laws of the State of Connecticut, with reference to rulesrelating to conflicts of law.
**Section 17. Entire Agreements**
     This Agreement constitutes the full and complete understanding andagreement of the parties and supersedes all prior understandings and agreementsas to employment of the Employee. This Agreement cannot be amended, changed,modified or terminated without the written consent of the parties hereto.
**Section 18. Waiver of Breach**
     The waiver by either party of a breach of any terms of this agreementshall not operate nor be construed as a waiver of any subsequent breachthereof.
**Section 19. Notices**
     Any notice, report, request or other communication given under thisagreement shall be written and shall be effective upon delivery when deliveredpersonally, Federal Express or by Fax.
     Unless otherwise notified by any of the parties, notices shall be sent tothe parties as follows:         To Employee: John W. Lockwood     121 Huntingdon Drive     Vernon, CT 06066          To the Group: Annuity & Life RE (Holdings) Ltd.     One Victoria Street     Hamilton, Bermuda  
**Section 21. Severability**
     If any one or more of the provisions contained in this agreement shall beinvalid and illegal or unenforceable in any respect under any applicable law,the validity, legality and enforceability of the remaining provisions containedherein shall not in any way be affected or impaired thereby.
**Section 22. Counterparts**
     This agreement may be executed in one or more counterparts, each of whichshall be deemed to be and original by all of which together will constitute oneand the same instrument.
 

 

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as ofthe date and year first written above.     /s/ John W. Lockwood   John W. Lockwood, Employee